On 24^th September, a group of entrepreneurs met at Impact Hub King’s Cross to understand how to become investment ready. We discussed what enterprises needed to prepare, what investors were looking for, what kind of investors were available in the market and we practised pitching.

Devi Clark enrolled the expert assistance of Jen Morgan from Finance Innovation Lab and Matt Black from Numbers for Good to deliver the workshop.

Here are some of the key points that we discussed:

What is needed to be investment ready?

• A great business concept with a successful pilot or early stage development
• An understanding of the context for your business and its customers
• Clarity about your business strategy and the plan to implement that strategy
• Forecasts and budgets for the enterprise which also demonstrate an investment return
• Clarity of the market for investors and which best suits your business
• A marketing plan, clear message / brand and online presence
• A clear company structure and a passionate team with a good track record
• Strong business ethics and the willingness to listen and learn
• Evidence of impact (for a social investor) and traction in the market
• A motivating pitch which inspires rapport and passion in the investor

What are investors looking for?

• A return on their investment (ROI) that provides real value for money
• A business with the social or environmental impact that inspires them
• A sector where the investor knows they can add value / strategic partners
• An ethical stance or connections that enhance the investor by association
• A business and team with potential

The impact investment marketplace

Matt Black from Numbers for Good presented a complex diagram of the social investment market. On the left were start up enterprises and on the right were those that were fairly large and trading successfully. From left to right, here is the kind of funding that is available for these businesses:

Generally, Matt said, the easiest way for those in the start up phase of their business would be either to:

• get a grant from an organisation like UnLtd or the School for Social Entrepreneurs (who include this as part of their start up training). You might also be able to access the Big Lottery’s Awards for All. Grants can be available for organisations at a later stage as well, but most commonly this is for those with charitable status.
• tap into “Friends, Fools and Family” – the people who know you and want to support you. If they won’t invest in you, he pointed out, then why would anyone else?

Once the business had started trading and had something to show for their efforts, other forms of funding open up.

• Reward-based crowdfunding, where members of the public donate money in return for a reward such as a sample of your product or their name on your website, is ideal for those who have a publically appealing cause and can invest the time in developing a great campaign. Examples of reward crowdfunding sites include Crowdfunder, Kickstarter, IndieGogo, BuzzBnk and CrowdPatch. Many of them have specialisms and some have a minimum that you have to raise before you are able to access any of the money, so choose carefully.
• A loan, perhaps from a normal high street bank such as NatWest, the Co-operative or Barclays is normally easier to get than one from a specialist social enterprise lender such as Social and Sustainable Capital, so though it seems counter-intuitive, you might want to start there first, especially if your enterprise does not have an asset lock.
• There are also hybrid models available. Big Issue Invest lends money, but converts it to equity if you don’t pay back within the agreed period. This ‘quasi-equity’ approach can give some flexibility but BII also limits themselves to particular areas of impact.
• If you are ready to give away a share of your business, angel investing may be perfect for you. Angels are usually high net worth individuals who will invest to see a financial return but also because the company appeals to them in some way. Many angels can also contribute advice and connections to a new business. There are many angel networks around, including specialist social enterprise ones such as that run by Clearly So.
• Equity Crowdfunding is a way of sourcing a number of individuals to take a share in your company via a crowdfunding platform. Amongst the best known is CrowdCube. Again, hybrid models exist, with Angels Den involving a pitch to angel investors who can fund all or some of the ask, and put the business on the crowdfunding site for the remaining amount.

The equity options above usually become available either when you are trading convincingly, or you have a high growth (often digital) business that requires up-front investment to develop fast. It is not unusual for businesses to ask for more than one round of funding. Once you already have some equity investment and your business is more substantial you may decide to apply for:

• Venture Capital. This is a form of equity funding, but tends to be for much higher amounts – at least £500k, but more likely into the millions. Rather than individuals investing, companies that specialise in this kind of investment provide the money, plus a lot of scrutiny. They expect a high return on their investment because not all of the businesses they invest in succeed, plus their business is investment, so they have to make enough to make it worthwhile.

Navigating the investment market can be challenging, and ensuring you are prepared to appeal to what investors are looking for takes time and insight. The social investment market therefore also includes intermediaries who can help you. Some of the organisations already mentioned (Clearly So, Big Issue Invest, etc) build advice and support into the process of gaining investment. Other organisations, such as Numbers for Good act as intermediaries who help organisations with potential to navigate the market and bridge the gap to investors.

Numbers4Good also work on Social Impact Bonds which are a complex mechanism to get money up front but then to pay back an investor based on social results which create financial value for society (such as housing homeless people).

The government wants to encourage investment and has therefore created incentives for investors such as angels to do so. The EIS and SEIS schemes create tax breaks for those who are investing in companies.

Key Reflections from the enterprises pitch practice sessions

• Work on a logical structure for the pitch and be succinct
• It’s important to tell your own personal story
• Research your investors and be clear how to position your business for them
• Make the pitch interesting and visually engaging – don’t just read words from a slide
• Be clear what you are asking for and include details of what the investment will be spent on
• Talk about numbers confidently, including revenue, gross and net profit and the investor’s ROI and, for social investors, your social or environmental impact
• Be prepared to tackle your (perceived) weaknesses – e.g. youth of the leadership team
• Get your business structure / Memorandum and Articles of Association sorted

Other key messages on investment

• Finding an investor who can help, as well as providing their money, is a real benefit
• Obtaining investment takes time – allow for that in your forecasts
• Even once you have secured a verbal agreement, the due diligence process is where the investor checks all your documents and ensures they have confirmed that what you told them is accurate. Deals can fall through even at this late stage.

Resources that may be of interest

Report on Impact Measurement: Oranges and Lemons: Esmee Fairbairn

TED Talk: Amy Cuddy, about body language

Report: JP Morgan and others: The state of the Impact investment market in the UK

Report: EngagedX: The rise of the social investment market worldwide